Too big to fail or just too complex to manage? Bank of America on Monday reminded investors it is easy for banking behemoths to be both.

BofA said a flaw in the way it was calculating regulatory capital had punched a more-than-$4 billion hole in its loss-absorbing buffer. This led it to suspend a planned $4 billion share buyback and increase of its quarterly dividend to five cents a share from a penny.

The market's reaction, with about $10 billion of BofA's market value wiped out, was swift, brutal and justified.

Given fears in recent years over its ability to survive multibillion-dollar legal charges tied to mortgage bonds, along with the rejection by the Federal Reserve in 2011 of its capital-return request, BofA has to constantly prove it isn't an accident waiting to happen.

For a time, it had done so, working to settle litigation and getting its operations on a sounder footing. The result: Earlier this year investors were pricing the stock as if BofA had nothing but smoother sailing ahead and would easily reach profitability goals laid out by chief Brian Moynihan.

But the latest misstep, along with news last week the bank may enter into a $10-billion-plus legal settlement with the government over mortgage bonds, has undone much of that progress. It underscores the operational and regulatory risk that is ever present for a bank this size.

And it leaves BofA with a $4 billion hole to fill before it can significantly boost payouts to shareholders. While the bank will resubmit its capital plan to the Fed within 30 days, it said it would ask to return less than originally envisaged. And that approved request already had been trimmed back after the bank felt it was too close to minimum requirements in the Fed's stress tests.

Granted, what happened is complicated, involving the classification for regulatory, not accounting, purposes of a certain kind of loss. But that only underscores the lengths investors need to go to when it comes to understanding big-bank performance.

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It also serves to emphasise that there is a difference between a bank's regulatory capital and the equity figures it presents in financial statements under generally accepted accounting principles. And in an era of far-more-stringent regulation, capital becomes paramount in terms of both managing a bank, as well as in deciding the payouts investors may ultimately see.

BofA's issue centred on debt it assumed as part of its acquisition of Merrill Lynch, so-called structured notes. This debt was marked to market values each quarter with gains and losses flowing through earnings.

This practise has led to considerable controversy since the changes reflect shifting views of a firm's own creditworthiness. That results in what many consider a perverse outcome: As a firm weakens, its liabilities shrink, resulting in gains that boost earnings. Makers of accounting rules are changing the way this works so that it won't impact earnings. And while banks have attacked the practise, they were the ones who lobbied for it in the first place, about a decade ago.

Bank regulators, though, exclude such gains and losses from regulatory capital. This is in part why there can be differences between the equity a bank shows on its balance sheet and measures of regulatory capital, such as Tier 1 common equity.

The rub is that banks are only supposed to exclude from capital unrealised gains and losses. Realised ones are supposed to stay in. BofA had lumped them together. Because the bank was realising losses on some of the structured notes that matured, their exclusion flattered its regulatory capital. This boosted ratios that are based on it and which partly influence the size of buybacks and dividends.

When BofA purchased Merrill, it assumed about $60 billion in structured notes. This has since declined to about $30 billion. The sheer size of the amounts involved shows why the improper classification of some losses could lead to such a large dent.

Although BofA's capital ratios are still well above minimum thresholds, the adjustment lowered its key regulatory ratios by about 0.3 percentage points. Given the bank, like peers, wants a cushion above minimum levels, it will now have to make that back. That will lead to slower, and lower, payouts to shareholders.

The size of the adjustment, along with the fact the problem went undiscovered for so long, also shows how even big problems can get lost in the morass of a bank with $2.1 trillion in assets.

Fortunately for BofA, it appears that it will be able to remedy the problem fairly quickly. For investors, who now have to adjust their thinking about the timing of capital returns as well as BofA's ability to manage its sprawling empire, the pain will linger longer.